Dynamic Macroeconomics

particular models in the relevant chapters and they relate to the specific
issues these models seek to explain. The discussion of these facts facilitates
the process of evaluating the relevance and usefulness of the theoretical
models in the rest of this book.
However, note that the rigorous and full empirical evaluation and testing
of alternative theories and models is beyond the scope of this book. The
present text, although concerned with models that account for the key stylized

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facts about macroeconomic phenomena, is a text on macroeconomic theory,
not empirical or applied macroeconomics. Texts that focus on empirical
macroeconomics and macroeconometrics could complement the present text
for empirically inclined students and economists, and should indeed be
consulted, as macroeconomics ultimately relies on the interactions between
theory and evidence.
3
The book assumes introductory knowledge of economic theory and
mathematics for economists. The main mathematical techniques needed to
analyze optimizing dynamic macroeconomic models are fully reviewed in the
appendixes. These appendixes assume some basic prior knowledge of the
material contained in mathematical textbooks for economists but are for the
most part self-contained. They discuss some useful functional forms for the
production and utility functions used in macroeconomics, derivatives and
partial derivatives, optimization under constraints and the Lagrange method,
linear algebra and the solution of linear models, solution methods for linear
differential and difference equations, dynamic optimization techniques, and
random variables and stochastic processes.
The book has emerged from my lectures over more than 30 years at
Birkbeck College, University of London, and the Athens University of
Economics and Business, both at advanced undergraduate and postgraduate
levels. The past 50 years have been a period of impressive progress for
dynamic macroeconomics, which has transformed the discipline. The book
traces this evolution and the current trends in macroeconomics, and is thus
suitable for advanced undergraduates, professional economists, and graduate
students in the first year of degrees leading to an MSc or a PhD in economics
or related subjects, such as finance.
I thank a number of people who have contributed to this book, both directly
and indirectly.
First and foremost, I thank my PhD advisors during 1979–1981 at the
London School of Economics: George Akerlof, Steve Nickell, and Chris
Pissarides. They had a great positive influence on my training as a
macroeconomist and on my attitude as an academic economist, which has
stood me well over the years. I owe them a lot.
More recently, my biggest debt is to successive generations of students,
and especially the students in the master’s and PhD programs in economics at

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the Athens University of Economics and Business over the past decade. They
have suffered through successive versions of my lecture notes between 2009
and 2016, provided useful feedback, and helped improve the original notes.
The Fletcher School at Tufts University was an ideal academic
environment that allowed me to complete and improve the manuscript
between 2016 and 2018.
Various colleagues have contributed through comments and discussions
that have helped bring about improvements in the book. I particularly thank
Marios Angeletos, Yannis Ioannides, Michael Klein, Tryphon Kollintzas,
Athanasios Orphanides, Apostolis Philippopoulos, and Plutarchos
Sakellaris. Olivier Blanchard reviewed an early version of the full
manuscript and provided helpful comments and much needed encouragement.
I thank Emily Taber, the MIT Press economics acquisitions editor, for
putting this manuscript through a very efficient editorial process. I also
acknowledge the very helpful comments and suggestions of eight anonymous
reviewers in the prepublication process. These reviews have been extremely
useful and have led to a much improved manuscript. The copy editor, Cyd
Westmoreland, and the production editor, Erin Davis, have also helped
improve the final manuscript, through a very efficient editing process.
Throughout the long years of writing, revising, and rewriting, my wife
Dika has provided much needed support and encouragement, as she has done
through the many years of our common life. I cannot thank her enough.
I remain solely responsible for all remaining errors.
George Alogoskoufis
Fletcher School, Tufts University; and Athens University of Economics and
Business
1
. The dynamic simulations of the various models are carried out through the use of the software
platform Dynare (dynare.org), in conjunction with the programming language Matlab (mathworks.com).
The Dynare programs used for carrying out the simulations are available through the dedicated website
for the book (dynamicmacroeconomics.com).
2
. As noted by Keynes [1938], in a letter to Roy Harrod, “economics is a science of thinking in terms of
models, joined to the art of choosing models which are relevant to the contemporary world.” See Rodrik
[2015] for a similarly eclectic approach to the role of models in economics in general, and the rules for
setting up models and evaluating them.

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3
. Good examples of such texts are Favero [2001], Canova [2007], DeJong and Chetan [2011], and
Herbst and Schorfheide [2015].

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